THE VALUE OF MODERNIZING PROCESSES THAT
ENABLE INDIRECT SPENDING
An APQC White Paper
K05938
PERSPECTIVE FROM THE RESEARCH SPONSOR: ORACLE
Procurement organizations are continually challenged to keep costs under control. To do this, they
must increase their influence over both vendors from whom they source goods and services for the
business and over the spending activities of the company's employees. Procurement leaders also need to
control the costs of outdated and inefficient processes that often involve paper documents, ineffective
collaboration and the re-keying of information from one system to another. As companies grow, so do
the demands on their procurement departments. However, as economic uncertainty continues, most
companies are resistant to adding headcount and raising their cost structure. Lacking the ability to add
more people, procurement departments need to modernize the company's source-to-pay process to
handle increased volumes. The solution is adopting modern technology that automates routine tasks and
enables better collaboration with suppliers and colleagues, which results in significant enhancements in
efficiency as well as improvements in productivity and reduced cycle times.
At Oracle, we’ve had the opportunity to work with our customers and observe how they utilize
technology to drive greater efficiencies across the source-to-pay process. Many of them are increasingly
adopting cloud-based applications that incorporate modern functionality that helps change the way
people work. A large food products company recently consolidated disparate systems from across the
company into a single, integrated source-to-pay system resulting in a seamless process flow across the
entire cycle. They’ve also reduced their costs by millions of dollars through greater spend visibility
across suppliers and improved negotiation capabilities. A telecommunications company was able to get
its “maverick” spend under control through the broad deployment of self-service procurement to its
employees resulting in greater user satisfaction and lower costs. Further, many customers describe the
benefits of having a truly integrated source-to-pay process where procurement and accounts payable
collaborate more effectively. Manual processing of internal requisitions and approvals, creation of
purchase orders, and reconciliation of vendor invoices combine to drive up costs. It also increases cycle
times and makes it difficult to process invoices quickly to take advantage of early payment discounts.
Examples of both functions working in concert include creating procurement contracts that contain
provisions for electronic invoicing and early payment discounts. Automated invoice reconciliation
ensures that vendor invoices are processed and paid quickly, allowing the company to take early
payment discounts and increase returns on working capital.
Cloud-based applications can play a key role in modernizing your source-to-pay process. They not only
reduce the cost of deploying enterprise applications, they also incorporate modern technologies that
provide capabilities that were not previously available in legacy systems such as social collaboration,
more intuitive user experiences, embedded analytics, and support for mobile devices. We’ve identified
five key characteristics of modern cloud-based procurement systems that enable procurement and AP
to collaborate more effectively, work more efficiently, and reduce the cost of operations.
Strategic
Procurement’s greatest value to the organization comes from identifying and evaluating potential
vendors, selecting those that offer the best value and negotiating agreements that secure the best pricing
terms for the company. Technology helps automate the source-to-pay process by reducing timeconsuming administrative tasks and enabling procurement professionals to focus on what they do best—
evaluating potential vendors, selecting those that offer the best value, and periodically re-qualifying them.
Technology solutions can also help sustain procurement’s contribution by enforcing disciplined and
compliant purchasing throughout the company to ensure that negotiated pricing is translated into
savings and improvements in operating margins.
©2015 APQC. ALL RIGHTS RESERVED
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Insightful
Procurement professionals benefit from graphical award analytics that give them the ability to compare
criteria across multiple vendor quotes, make faster vendor selections, and provide the best value to the
company. They can also leverage insight to manage supplier negotiations in real-time. When making selfservice buying decisions, employees can tap embedded analytics that help them make faster product
comparisons that improve satisfaction and productivity while encouraging on-contract purchasing.
Collaborative
Modern procurement applications improve collaboration on several dimensions. Using social
collaboration, a conversational stream embedded in transaction screens, helps increase cross-functional
team communications and information sharing. It enables people to partner across departments to
define requirements, negotiate contract terms, and achieve faster execution. In addition to social
collaboration, powerful built-in workflow capabilities help them collaborate with suppliers through
online portals to streamline information sharing, receive RFP responses, and transmit purchase orders,
invoices and payments between parties faster and more accurately.
Efficient
Modern procurement systems feature consumer-like experiences that make it easy to adopt. You need
to make sure the hard work of selecting and qualifying suppliers and negotiating better prices translate
into actual cost savings. Procurement’s internal customers, the company’s employees who initiate
purchases, require an application that makes it easy for them to find what they need through an intuitive
online catalog that also ensures their purchases will be contract compliant. Modern user experiences
and mobile device support also help reduce administrative work by making it easier for regular users to
find what they need, prioritize actions, secure approvals, and complete their work faster.
In Control and Compliant
Organizations that still rely on paper-based contracts and manual authoring are spending too much time
creating, revising, and approving contracts. After awarding business to a supplier, modern procurement
systems simplify the step of creating contracts through guided document authoring, terms libraries, and
revision workflows that decrease workload, increase efficiency, and reduce risk. They also ensure that
contracts comply with company-wide standards and incorporate pre-defined business rules that guide
reviews and approvals. They also help streamline the entire process and translate contract terms into
policies and rules that enforce compliant buying behavior, approvals, and reviews with robust audit trails.
The Oracle Cloud
Oracle is helping our customers achieve procurement excellence by delivering modern cloud-based
solutions as part of our Oracle ERP cloud. They were developed from the ground up with modern
technologies like social collaboration, embedded analytics, and support for mobile devices. They also
feature an engaging consumer-like user experience to increase user adoption, standardize and automate
routine transactions, and manage all of an organization’s source-to-pay needs. With comprehensive
functionality across business processes, customers can solve their business problems with end-to-end
execution and complete visibility to help them modernize their procure-to-pay cycle, keep costs under
control, and maintain profit margins.
For more information: https://www.oracle.com/procurement-officer
©2015 APQC. ALL RIGHTS RESERVED
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THE VALUE OF MODERNIZING PROCESSES THAT ENABLE INDIRECT
SPENDING—AN APQC WHITE PAPER
There’s a clear trend afoot: managers of business procurement processes, along with their counterparts
on financial management teams who focus on accounts payable, invoice processing, and management, are
keenly interested in strategic benefits that can be obtained by moving forcefully to modernize.
In early 2015, APQC conducted a survey to learn what plans companies have for modernizing aspects of
their procure-to-pay (P-to-P) process. Another goal was to explore the strength of collaboration
between procurement and accounts payables (AP) professionals. The primary focus was on indirect
spending: the procurement of and payment for goods and services commonly bought for consumption
by internal stakeholders, rather than external customers or clients.
APQC sent the survey to both procurement and finance professionals and received responses from 132
organizations, nearly two-thirds of which individually generate more than $1 billion in annual revenue.
Nearly half of the respondents work in the procurement function and one-third in finance. The rest held
titles that indicated they had responsibilities in both procurement and AP or were business process
management experts. In addition to fielding the survey, APQC conducted personal interviews with
several organizations that, based on their survey responses, appeared to be further than most along on
the path to progress.
WHY THIS RESEARCH NOW?
APQC launched this study after observing a surge of interest in P-to-P process improvement. A growing
number of organizations are investigating the benefits of streamlining their process models and enabling
them with technology such as e-invoices,1 self-service portals for employee requisitions, and automated
workflows to accelerate invoice processing. Moreover, there has been a groundswell of demand for
APQC’s procurement and AP process benchmarks, a sign that managers want to measure their
improvement opportunities and pursue the most promising.
One example is Woodward Inc., which integrates technologies into fuel, combustion, fluid, actuation,
and electronic control systems for aerospace and energy markets around the world. Company
headquarters are in Colorado. Martin Schulz is financial manager for corporate analysis and systems. He
oversees process improvement for core financial management activities. Currently, he is working with
the global supply manager for indirect services to plan a shift from paper-based invoice management to
automated invoice processing using software from OpenText. They expect implementation to begin in
the second half of 2015. Meantime, they are working to implement an e-procurement system, which
involves software-as-a-service (SaaS), in other words, cloud technology. The goal is to have all 22 sites
worldwide eventually using standardized processes and systems with the ultimate aim being stronger
control and compliance and a better audit trail. “In addition,” said Schulz, “we want to gain better
visibility into the process and therefore get better visibility on bottlenecks.” They also want to improve
the experience for their internal customers. For example, they will have a hosted catalog, which does
take some effort to put together. But Woodward sees the benefit: it will provide a capability to drive
toward negotiated pricing. If a vendor resists the notion of the e-catalog, then that supplier can be
persuaded to join a supplier network set up by the SaaS supplier, which has Woodward’s chart of
accounts so it can manage direct communications with the company’s ERP system.
1
The true definition of electronic invoicing is the exchange of the invoice document between a supplier and a
buyer in an integrated electronic format. The e-invoice should contain data from the supplier in a format that can
be entered (integrated) into the buyer’s AP system without requiring any manual data entry by the buyer. Source:
Open Text Corporation.
©2015 APQC. ALL RIGHTS RESERVED
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Schulz went on to explain the plan for the new approach to invoice processing. “Paper invoices will be
sent to a third party for scanning or sent to a dedicated email site so that we can extract digital data. If
it’s a purchase order (PO) item, we’ll kick it to the ERP for automated three-way match. If it’s non-PO,
we’ll kick off an automated approval workflow.” Moreover, if a PO item fails to match automatically,
“there will be several email workflows [that facilitate communications to reconcile the issue], and this
will give us substantial time savings,” said Schulz. At the back-end, Woodward will have a single archive
that will be highly searchable. Schulz ended by explaining the beginning: he did process benchmarking to
identify efficiency gaps. From there, “I did a discounted cash flow analysis to get a net present value
target and then I was able to see an overall payback,” he said.
As explained below, the vast majority of organizations that participated in the APQC survey are moving
to modernize their P-to-P processes. Many are starting the journey in the realm of indirect
procurement. For a lot of companies, this is a good place to begin because the process of developing a
proof of concept is straightforward. What’s more, today’s software solutions, whether cloud-based or
on-premise, are quite mature.
What are the driving factors behind P-2-P process improvement? APQC’s survey shows that
organizations want to enhance:






service to internal customers,
cost efficiencies,
staff productivity,
policy enforcement and controls,
the ability to identify and reduce “maverick” spending, and
collaboration with vendors.
Process cost reduction is always on the list of outcomes drawn up by process owners. Beyond that,
organizations today are looking for tools and techniques that will strengthen enforcement and control of
spend policies—ideally, without having to add more people to the procurement staff. Recent technology
innovations are helpful in this regard. For example, e-catalogs accessible via online portals can make it
quite easy for employees to order supplies from approved vendors. At the same time, an e-catalog can
ensure that employees are buying materials or services at pre-negotiated prices. Beyond that, analytics
software can help procurement and AP managers easily analyze patterns of spending, which in turn can
inform pricing negotiations. Another example: cloud-based technology, with its embedded collaboration,
workflows, and analytics, reduces the processing burden on both procurement and AP staffs.
KEY RESEARCH FINDINGS
The vast majority stated that their organizations are committed to continuous improvement. Given the
relatively large size of the companies surveyed, this is not surprising. Many large companies that operate
globally, which is the case here, have developed strong process management capabilities over time. That,
in turn, helps them in their efforts to standardize and leverage technology breakthroughs.
Half of the organizations surveyed have pursued cross-functional process improvement involving
procurement and AP over the past two years (Figure 1). Most who have not yet done so expect to be
engaged in such initiatives in the two years ahead (Figure 2).
©2015 APQC. ALL RIGHTS RESERVED
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Have procurement and AP embarked on a joint effort to drive cross-functional process
improvement in the past two years?
100%
80%
60%
51.1%
37.4%
40%
20%
11.5%
0%
Yes
No
Don't know
N = 131
Figure 1
If you’ve not yet moved forward, what is the likelihood that your company will require
procurement and AP to drive a cross-functional process improvement program in the
next two years?
50%
40%
30.6%
32.7%
30%
22.4%
20%
12.2%
10%
2.0%
0%
Extremely
unlikely
Unlikely
Neutral
Likely
Extremely likely
N = 49
Figure 2
©2015 APQC. ALL RIGHTS RESERVED
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Chances are, however, that cross-functional improvement efforts will prove quite challenging for many
companies. Why? Only one third of survey takers were willing to describe the current level of
collaboration between procurement and AP as effective (Figure 3). With another survey question,
APQC learned that 40 percent described collaborations between the two areas as “sporadic, good faith
efforts but little communication takes place.”
In your opinion, how effective is the collaboration between procurement and AP when it’s
time to review cross-functional process efficiency and effectiveness?
50%
41.1%
40%
30%
26.4%
22.5%
20%
10%
6.2%
3.9%
0%
Ineffective
Minimally
effective
Partially effective
Effective
Very effective
N = 129
Figure 3
With another survey question, APQC learned that 40 percent described collaborations between the
two areas as “sporadic, good faith efforts but little communication takes place.”
STEPPING UP TO MAJOR CHANGE
Lars Henriksson is the global process leader for indirect materials and services at IKEA Group based in
Sweden. IKEA is a global network of franchised stores that sells home furnishing products with an iconic
brand. Henriksson explained that five years ago the company set a goal of doubling revenues by 2015.
That meant major change. They began with a detailed mapping of the processes that support indirect
procurement and then implemented a standardized procurement system. Today, employees who need
to buy materials or services can search an online catalog, and this way IKEA can achieve attractive
volume discounts and ensure contract compliance. The system also features an automated workflow
capability that streamlines and documents the approval of requisitions and generation of purchase
orders. Moreover, store-based administration of indirect procurement shifted into shared services
organizations, one in Poland and one in China. “We moved all of the transaction work around AP and
T&E into the shared services centers, and now we have one global process for handling invoices,” said
Henriksson. He explained that strong process governance is pursued by way of a Business Process
Council that includes representatives from global treasury, procurement, and AP/finance. Henriksson
also shared that there is a plan in place to start using cloud-based solutions in a year or so. The plan is
to take advantage of new capabilities being rolled out by the company’s software vendor once it is clear
the new code works smoothly.
©2015 APQC. ALL RIGHTS RESERVED
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THE MARCH TO MODERNIZATION
Nearly 85 percent of survey takers say their P-to-P process would benefit from modernization. Note
that APQC defined modernization as using IT innovations such as e-commerce portals, automated
workflows, or online self-service tools for employees (Figure 4). Respondents overwhelmingly agreed
that modernization would allow them to improve service to internal customers, bolster policy
enforcement and controls, and vastly reduce the effort that AP has to put into reconciling invoices and
invoice management.
Do you personally believe that the P-to-P or various sub-processes at your organization
could stand to be modernized?
100%
84.7%
80%
60%
40%
20%
7.6%
7.6%
No
Don't know
0%
Yes
N = 131
Figure 4
©2015 APQC. ALL RIGHTS RESERVED
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The Growing Appeal of Automation
It’s not hard to see why P-2-P process modernization efforts are on the drawing board at
many of the companies surveyed. Accounts payable (AP) functions are still drowning in
paper, but that may be about to change. According to APQC’s Open Standards
Benchmarking in accounts payable, at the median, 60 percent of invoices are still manually
keyed into the financial system. Top-quartile performers have pushed that percentage
down to 43 percent. Although myriad technologies perform an incredible array of tasks in
successful companies around the globe, AP departments are only now approaching the
crucial tipping point where the processing of electronic purchase orders, electronic invoices
from vendors, and automated payments—whether enabled by on-premise computing or
cloud-based solutions—will overtake manual, paper-based processes.
Electronic payment systems now on the market promise efficient communication,
reliable audit trails, and faster/smoother data processing between internal departments
and external suppliers. Differing systems offer various levels of transparency,
approvals, and monitoring from procurement to payment. However, the common
theme is less paper and less manual keying of data.
The numerous benefits of automating the AP process would appear to make the
conversion decision beneficial in nearly all organizations: electronic invoices promote
visibility, both from a procurement standpoint—to identify where spending is directed
and spend by vendor—and a speed perspective, minimizing the need for estimating
near-term liabilities. These benefits lead to working capital efficiency as finance can
more accurately forecast upcoming cash requirements and make decisions regarding
speed of payments and discount opportunities.
For more on this topic, see APQC’s Accounts Payable Automation: Electronic Invoicing
Gains Momentum.
A LOOK AT THE CLOUD
Typically, organizations purchase software, install it in their own data centers—with user access enabled
through their proprietary network—and then maintain it until the next version is released. The rapidly
expanding offerings of Software-as-a-Service (SaaS), which shifts the paradigm from a buy to rent model
for many advanced software systems including procurement and invoicing, hold great appeal as an
alternative for businesses of all sizes. SaaS providers make their software programs available via the
Internet, and users can log in from anywhere to use the programs. Companies license the programs
through a subscription agreement based on the number of actual users.
APQC’s survey found that the vast majority of organizations do not currently use cloud-based
technology to enable the primary aspects of P-to-P (Figure 5). However, a case could be made this
picture will shift in the foreseeable future.
©2015 APQC. ALL RIGHTS RESERVED
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Has your organization moved any of the following activities to the cloud?
100%
78.0%
80%
60%
40%
20%
10.2%
10.2%
Supplier management
Contracting
15.7%
0%
P-to-P transaction
execution
None of the above
N = 127
Figure 5
Among the finance community in general, however, concerns about the cloud remain. While there are
early signs that these concerns will melt away over the next few years, at the moment, a marked
sentiment is: “we will get there soon enough, but we just don’t want to be the first in our sector.” More
than one-third of survey respondents said the cloud is not currently an option. Another third simply
didn’t have enough knowledge of the situation to answer either way. But more than one in four are now
using cloud technology to support P-to-P, have plans to do so, or have the idea under consideration
(Figure 6).
©2015 APQC. ALL RIGHTS RESERVED
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Those not currently using the cloud were asked: What are your organization’s plans for
deploying cloud technology to support these P-to-P processes?
No plans to move to the cloud
38.1%
Don't know
33.0%
Now considering a move to the cloud
14.4%
Currently some work is enabled by cloud
technology; likely to increase in the future
9.3%
Planning a move to the cloud in the next
12 months
3.1%
Planning a move to the cloud, but it's more
than a year away
2.1%
0%
10%
20%
30%
40%
50%
N = 97
Figure 6
SUMMARY
There are several reasons that more companies today are looking at cloud solutions, and lower cost of
ownership is the one most frequently mentioned. That said, concerns about data security continue to
linger in the minds of both procurement and finance executives. The majority of survey respondents
who said they do not now use cloud technology say that the perception of security risk is a barrier they
cannot overlook. However, one can assume that as the CFO community becomes increasingly
comfortable with the cloud paradigm over the next few years, and as the major service providers build
confidence that their security defenses are formidable, we will still resistance slowly melt away.
In all, there is a clear march toward modernization of P-to-P processes, systems, and protocols. With
unrelenting pressure on back-office administrative functions to “do more with less” and, simultaneously,
improve control over spending behaviors and boost service to a mobile employee population,
eventually, concerns about the cloud will subside. That said, large organizations that have invested
heavily in on-premise computing are probably not all that ready to abandon that strategy entirely. It will
be interesting to observe over the next year or so how various management teams step up to this
challenge.
©2015 APQC. ALL RIGHTS RESERVED
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ABOUT APQC
APQC is a member-based nonprofit and one of the leading proponents of benchmarking and best
practice business research. Working with more than 500 organizations worldwide in all industries,
APQC focuses on providing organizations with the information they need to work smarter, faster, and
with confidence. Every day we uncover the processes and practices that push organizations from good
to great. Visit us at www.apqc.org and learn how you can make best practices your practices.
ABOUT ORACLE
Oracle engineers hardware and software to work together in the cloud and in your data center. For
more information about Oracle (NYSE:ORCL), visit oracle.com.
©2015 APQC. ALL RIGHTS RESERVED
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